Quick IRA question

[Astro14]

The child doesn't need to file a return if she makes less than a certain amount.

You set up an account defined within IRS regulations, return or no return, so, yes, IRS regulations apply.

 

[raytseng]

Taxes have always been a self-reported system where you decide how much to follow the rules, and the IRS audits once in awhile.

They don't send you a bill every year based on their forms, it's up to you to do the math, and maybe if they check and catch you they penalize you.

You can't have it both ways where you get the benefits but get to skip the penalties.


Potentially when closing out the account, your brokerage will transfer data to the IRS. Potentially the brokerage will automatically set aside the fees and pay it on IRS on your behalf.

Perhaps the IRS follows up on the form with you 2years later and they send you paperwork documenting the fees you owe +additional penalty fees and that's a big headache for you and your daughter. (nobody is going to jail, it's just paperwork)


Anyway, if you talked with an accountant or professional or the brokerage, their professional opinion is what you should follow and they understand the details and nuances better than me.

 

[Whitewolf]

Originally Posted By: Danh
Originally Posted By: Olas
I saw the thread title and thought Irish Republican Army.

I guess it's some kind of investment account for you guys?


"Individual Retirement Account". Unfortunate acronym, but it allows an amount of money to be set aside for retirement with certain tax advantages and restrictions.


It is indeed a very unfortunate acronym! For some of us it primarily means only one thing.

 

[Bandito440]

Originally Posted By: stockrex
Originally Posted By: raytseng
1) Why would they file it as a "deduction", your contribution is a gift to your child.
1b) If your child was filing taxes, it is not a deduction for them either as it's a ROTH IRA. Plus likely they aren't paying tax.

2) Was the Roth IRA created legally? in terms of did the child have taxable income? You better create a ledger and bookkeep some household chores as a "job" if you get notified of an audit. But because of (1) there's no audit or trail of this.


I think you got some issues with the understanding, so you better do some studying or pay someone to do. Start at the brokerage where the account is held; they can get you free advice.


It is always "OK" to withdraw the money. Don't let anyone say otherwise like they'll throw you in jail if you do.

There will be 10% penalty if it's not been held for 5years.

It is not your money, it is your child's money, unless you use it for a qualified expense like 10k of first house or college.



So I went and got the orig paperwork from the IRA and made a call to my accountant.

1. Roth IRA
2. Yeap,
3. I am able to take out principal without penalty.
4. Yes, she did not file taxes that year

Still confused about the penalty for an item that was never filed with IRS.

My girls had their college funded before they were born.

I'm not certain how you were able to open a Roth for someone without income. I believe that was a violation of the rules, but no matter. I suppose nobody's checking.

The brokerage where the IRA is held has sent a Form 8086 to the IRA reporting the account. That's how they make sure people don't deposit more than the maximum allowed.

So, withdraw the principal if you want. Or better yet, let it ride in an equities fund and it'll be a nice tax-free treat down the road.

 

[stockrex]

Originally Posted By: Bandito440
Originally Posted By: stockrex
Originally Posted By: raytseng
1) Why would they file it as a "deduction", your contribution is a gift to your child.
1b) If your child was filing taxes, it is not a deduction for them either as it's a ROTH IRA. Plus likely they aren't paying tax.

2) Was the Roth IRA created legally? in terms of did the child have taxable income? You better create a ledger and bookkeep some household chores as a "job" if you get notified of an audit. But because of (1) there's no audit or trail of this.


I think you got some issues with the understanding, so you better do some studying or pay someone to do. Start at the brokerage where the account is held; they can get you free advice.


It is always "OK" to withdraw the money. Don't let anyone say otherwise like they'll throw you in jail if you do.

There will be 10% penalty if it's not been held for 5years.

It is not your money, it is your child's money, unless you use it for a qualified expense like 10k of first house or college.



So I went and got the orig paperwork from the IRA and made a call to my accountant.

1. Roth IRA
2. Yeap,
3. I am able to take out principal without penalty.
4. Yes, she did not file taxes that year

Still confused about the penalty for an item that was never filed with IRS.

My girls had their college funded before they were born.

I'm not certain how you were able to open a Roth for someone without income. I believe that was a violation of the rules, but no matter. I suppose nobody's checking.

The brokerage where the IRA is held has sent a Form 8086 to the IRA reporting the account. That's how they make sure people don't deposit more than the maximum allowed.

So, withdraw the principal if you want. Or better yet, let it ride in an equities fund and it'll be a nice tax-free treat down the road.


You make very good point, that is my beef too. mistakes happen,

so one should be able to recharacterize your extra contributions or mistakes etc.

either way, I am curious, I will swing by the local IRS office on the way to lunch someday.

 

[Bandito440]

If you contribute over the limit to a Roth and the IRS catches you, the solution is just withdrawing the contributions. With zero income, the limit is zero.

It appears that anyone can open an account, and that the limits are on contributions. The IRS is very understaffed, and I imagine they're more concerned about people with incomes over the limit.

I say leave it unless they contact you with orders to withdraw the contributions.